Does Financial Inclusion Affect Banks' Efficiency?

The purpose of this study is to determine if financial inclusion has an impact on the efficiency and performance of Jordanian commercial banks based on annual data from 2011-2018. Bank's efficiency is measured by three dimensions; other operating expenses, other operating income and net interest income, while bank's performance is measured by return on assets and return on equity. All the Jordanian commercial banks, which are 13, have been used to achieve the objectives of this study. Using panel data based on fixed and random effect models, the study findings' display that financial inclusion has a positive and statistically significant effect on the bank's efficiency related to net interest income, while negatively reduces bank's efficiency related to other operating expenses. However, the findings show that financial inclusion did not affect other operating income, this is consistent with our descriptive statistics that shows other operating income is very low in Jordanian commercial banks. With respect to the bank performance, financial inclusion has a positive and statistically significant effect under two measures. Our findings imply that financial inclusion is beneficial as it positively enhances performance and bank's efficiency in terms of net interest income. However, financial inclusion is still in its early stages and its percentage is low in Jordanian commercial banks. Thus, this paper concludes that financial inclusion still leads to high operating costs for Jordanian commercial banks, and this requires banks to speed up the adoption of financial inclusion to increase the bank's performance and efficiency, as well as to reduce other operating expenses.